Updated 3 months, 4 weeks ago

China, Chile and their neighbors: how they could benefit from Trump’s anti-free trade wave

For Latin America the result of the U.S. election and the growing investments from China in the region could mean a new opportunity to promote their own development in a post-commodity boom environment.

On November 22, China’s Xi Jinping visited Chile for the first time as head of state, after two previous visits as minister. In La Moneda the Chinese President and his Chilean counterpart Michelle Bachelet signed an agreement to start negotiations on upgrading their Free Trade Agreement.

Chile was Mr. Xi’s last stop in Latin America, after visits to Ecuador and Peru in the wake of this year’s APEC summit. Mr. Xi’s visits took place in the aftermath of Donald Trump’s victory in the U.S. presidential election. This is hardly a coincidence. During the past decade, China has given increasing strategic importance to Latin America.

This trend began after the 9/11 attacks in 2001, when Washington shifted focus to the Middle East and Africa. This created a vacuum that China exploited by building closer diplomatic and economic ties with what Washington once considered it’s ‘backyard.’

Experts like Dindo Manhit, from the Albert Del Rosario Institute for Strategic and International Studies, think that China aims to create a free trade zone in the Asia-Pacific, as Mr. Trump’s victory likely buries the Trans-Pacific Partnership (TPP),Chile and Peru are part of TPP. The TPP was meant to define a U.S. economic and political zone of influence outside China’s reach.

With TPP dead in the water, China is now taking a leading role as advocate of regional trade deals, hoping to exclude North America.

A new era of Sino-Latin relationships?

China is one of the most important trade partners for Latin America, and indeed the most important one for Chile. For the next decade the Beijing government anticipates that bilateral trade will reach US$500 billion, and accumulated Chinese investment in the region US$250 billion.

We have to remember that in the past decade China’s two biggest development banks (China Development Bank and the Export-Import Bank of China) have pumped US$125 billion into Latin America, more than the U.S.-dominated World Bank and the Inter-American Development Bank combined.

The current economic relation between Beijing and the region is still based on raw material exports, like copper in the case of Chile. Latin American economies could now have an opportunity to improve trade terms and initiate a new era of economic relations that promote their own development in a post-commodity boom environment.

Shortly before Mr. Xi’s Latin America trip, Chilean ambassador to China, Jorge Heine, claimed in an interview that Latin American countries should participate in the so-called The Belt and Road Initiative to foster South-South cooperation, highlighting the capital and the technology that Chinese business could bring to Latin America. Mr. Heine hopes that Chile can attract Chinese investment to boost cooperation in digital technology.

New model of development

Although regional organizations such as APEC were established to promote trade liberalization in the Asia-Pacific, now many leaders prioritize agendas that highlight the importance of investing in human capital to build sustainable and inclusive economies.

This objective seems ever more urgent in the current climate of populist leaders rising around the globe to a large degree because the uneven wealth distribution, inherent in the current economic model. The model has alienated large segments of the population, especially the less educated, more vulnerable to the alterations of the international trade.